Thinking about finally tackling that renovation you’ve been dreaming about? Or leveraging the first tax return of the decade to reinvest into your home and generate more equity? Good, you’re on the right track. But before you go all in on your project, we want to help you understand the realities of a renovation and be practical when it comes to a budget.
When we started out, we failed to accurately estimate all of our projects. It happens to most contractors, and we certainly weren’t proud of it. We lost money and learned really quick, which in the grand scheme of things was the price of admission when it comes to educating yourself on the process. After doing a ton of research we found a simple formula by advisor Shawn Van Dyke to help streamline our estimates and ensure that we are building a profitable company.
Price = Cost + Markup
Cost is your cost of goods sold, or COGS. This includes all project materials, sub-contractors, labor and equipment (if needed). Essentially everything related to the overall project build.
Markup is comprised of overhead and profit for the contractor/construction company/designer. The overhead bucket typically consists of transportation, communication, marketing, rent, etc. at a rate as occurred over the project duration. If a contractor has numerous projects happening simultaneously, these costs could be less to each client as it is broken out. Some general contractors may also include their fee for project management and oversight in this bucket as well.
Why Correct Estimates Matter
So why does this matter to anyone who doesn’t own and operate a construction or design business? Because as homeowners it is important to understand how an estimate works. If you’re doing the proper research then you have a general idea of prices for materials and finishes, and are likely adding them up against your overall budget. Things like cabinets and appliances, fixtures, toilets, paint… these are all items that can quickly be sourced and give you an overall idea of cost. But what about the time it takes to put it all together? The time and expertise to ensure a job is done properly, on time, and on budget
The big thing to remember is that no one works for free! You want the most qualified (not the most expensive, necessarily) talent on your job and trust us, with a lack of trades in the market, it is becoming harder every single day to locate qualified candidates to employ. Approaching your project from day one with a clear understanding of what it may take will create an immediate alliance and respect between you and your general contractor, and the end result will be that much better!